Income Tax Appellate Tribunal - Jaipur
Satish Agarwal, Jaipur vs Assessee on 24 September, 2015
vk;dj vihyh; vf/kdj.k] t;iqj U;k;ihB] t;iqj
IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR
Jh Vh-vkj-ehuk] ys[kk lnL; ,oa Jh yfyr dqekj] U;kf;d lnL; ds le{k
BEFORE: SHRI T.R.MEENA, AM & SHRI LALIET KUMAR, JM
vk;dj vihy la-@ITA No. 969/JP/2013
fu/kZkj.k o"kZ@Assessment Year : 2008-09.
Satish Agarwal, cuke Dy. Commissioner of
534, Mahaveer Nagar, Tonk Vs. Income Tax, Central Circle-
Road, Jaipur. 3, Jaipur.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No. ABSPA 0790 N
vihykFkhZ@Appellant izR;FkhZ@Respondent
vk;dj vihy la-@ITA Nos. 971 & 972/JP/2013
fu/kZkj.k o"kZ@Assessment Years : 2003-04 & 2008-09.
Ram Kumar Agarwal, cuke Dy. Commissioner of
534, Mahaveer Nagar, Tonk Vs. Income Tax, Central Circle-
Road, Jaipur. 3, Jaipur.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No. ABSPA 0792 Q
vihykFkhZ@Appellant izR;FkhZ@Respondent
vk;dj vihy la-@ITA No. 973/JP/2013
fu/kZkj.k o"kZ@Assessment Year : 2009-10.
Renu Agarwal, cuke Dy. Commissioner of
534, Mahaveer Nagar, Tonk Vs. Income Tax, Central Circle-
Road, Jaipur. 3, Jaipur.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No. ABSPA 0794 J
vihykFkhZ@Appellant izR;FkhZ@Respondent
2
ITA No. 969, 971, 972, 973, 989 & 990/JP/2013.
Satish Agarwal Vs. DCIT & Ors cases.
vk;dj vihy la-@ITA Nos. 989 & 990/JP/2013
fu/kZkj.k o"kZ@Assessment Years : 2007-08 & 2008-09.
Kanha Ram Agarwal, cuke Dy. Commissioner of
129-E, Govind Nagar, Vs. Income Tax, Central Circle-
Dusherra Kothi, Jaipur. 3, Jaipur.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No. ABSPA 0791 P
vihykFkhZ@Appellant izR;FkhZ@Respondent
fu/kZkfjrh dh vksj ls@ Assessee by : Shri S.L. Poddar (Adv)
jktLo dh vksj ls@ Revenue by : Shri M.S. Meena (CIT)
lquokbZ dh rkjh[k@ Date of Hearing : 14/09/2015.
mn?kks"k.kk dh rkjh[k@ Date of Pronouncement : 24/09/2015.
vkns'k@ ORDER
PER BENCH These appeals are being filed by the different assessees and heard together on commons issues, therefore, these are being disposed of by a common order, but we are deciding each ITA individually.
2. ITA No. 969/JP/2013:-
This is an appeal filed by the assessee against the order dated 12/11/2013 of the learned C.I.T.(A), Central, Jaipur for A.Y. 2008-09. The effective grounds of appeal are as under:-
"1. Under the facts and circumstances of the case the Assessing Officer has erred in initiating proceedings U/s 3 ITA No. 969, 971, 972, 973, 989 & 990/JP/2013.
Satish Agarwal Vs. DCIT & Ors cases.
153A without having any incrimination material, hence the assessment completed is ab-initio void.
2 Under the facts and circumstances of the case the Assessing Officer has erred in confirming the addition of Rs. 6,69,062/- on account of "Interest paid to bank"
without consideration the submission of the assessee and material evidences submitted during the assessment proceedings."
3. Ground No. 1 of the appeal is not pressed, therefore, we dismiss this ground as not pressed.
4. The ground No. 2 of the appeal is against confirming the addition of Rs. 6,69,062/- on account of interest paid to bank. The assessee derived income from share of profit from firm, capital gain and other sources. He filed his return for A.Y. 2008-09 on 30/01/2009 declaring total income of Rs. 34,24,610/-. There was a search and seizure operation conducted in this case on 27/08/2008 U/s 132 of the Income Tax Act, 1961 (hereinafter referred as the Act). Therefore, assessment in this case as passed U/s 153A/143(3) of the Act. The ld Assessing Officer observed that the assessee had debited a sum of Rs. 6,69,062/- in the income and expenditure account under the head interest paid to bank. It is found by the Assessing Officer that the assessee has utilized overdraft facility from bank to invest in IPO of Indian companies and 4 ITA No. 969, 971, 972, 973, 989 & 990/JP/2013.
Satish Agarwal Vs. DCIT & Ors cases.
paid interest to the bank. It was submitted before the Assessing Officer vide letter dated 02/12/2010 that no borrowings were made by the assessee on which interest has been paid. The assessee is free to use his funds the way he likes. The assessee had not paid any interest to the outsider. He has net income from other sources at Rs. 23,46,565/-. Further he submitted before the Assessing Officer that withdrawal of OD account were used for the share business, against this the assessee had paid interest of Rs. 6,69,062/-. The assessee had shown short term capital gain of Rs. 9,07,828/-, which were taxable, therefore, it cannot be said that borrowings were used for earning of exempt income. The ld Assessing Officer observed that the assessee had own several assets in the balance sheet but they do not have relevance so far as application of fund taken on interest and claim of deduction of such interest from income generated from such assets is concerned. In case of assessee interest has been paid to the bank on withdrawals used for investment in applications of initial public offer of shares in listed companies. The income from such investments (Dividend) is exempt from tax U/s 10(38) of the Act. Thus, the expenditure on assets income from which is exempt from tax is not allowable under the provisions of 5 ITA No. 969, 971, 972, 973, 989 & 990/JP/2013.
Satish Agarwal Vs. DCIT & Ors cases.
section 14A of the Act. Therefore, he made addition of Rs. 6,69,062/-. He relied on the decision of ITAT Delhi Bench 'B' Special bench, New Delhi in the case of Cheminvest Ltd. Vs. ITO ITA No. 87/Del/2008 order dated 05th August, 2009.
5. Being aggrieved by the order of the Assessing Officer, the assessee carried the matter before the ld CIT(A), who had confirmed the addition by observing that the appellant received interest @ 9.75% of Rs. 18.98 lacs on the FDR made from surplus funds available with him. Interest paid on the overdraft facility taken against this FDR was @ 10.75% totaling to Rs. 6,69,062/- during the year. The overdraft limit was used to invest in IPOs and shares to the extent of Rs. 91,18,262/- during this assessment year apart from the overdraft taken to advance loans to other persons outside the family from whom interest was charged. The assessee was maintaining continuous current account with the family members of the firm M/s Carpet Palace from where amounts were withdrawn from time to time to prevent the overdraft from going over the allowed limit. She further held that the overdraft facility was used to grant loans to person other than the family from whom the interest has been declared, though nexus has 6 ITA No. 969, 971, 972, 973, 989 & 990/JP/2013.
Satish Agarwal Vs. DCIT & Ors cases.
never been proved whether entire interest reflected in the computation of income was from loans advanced through OD account. Thus the appellant had taken OD facility which was used to advance loans to person other than family members from whom interest was charged and shown as income and also invested in shares and IPO, the income from which is dividend and was not taxable. The appellant did not have any surplus fund with him when he invested the surplus money in the FDRs. The OD taken against the FDRs amount withdrawn from the OD and invested in the IPOs cannot be claimed that the assessee was having surplus fund. The assessee is also not entitled to netting of the interest earned on FDR with interest paid on the OD as there is no nexus between the earning of the interest and expenditure incurred on earning of this interest, therefore claim of the assessee is not allowable. She relied on the decision of Hon'ble Jurisdictional High Court in the case of Hamendra Singh Vs. CIT 170 ITR 508 (Raj). She further observed that the assessee had not explained the investment in IPOs month wise and also not explained relationship between overdraft amounts withdrawn with investment. She further held that case law relied upon by the AR i.e. CIT Vs. Hero Cycles (2010) 233 CTR 74 7 ITA No. 969, 971, 972, 973, 989 & 990/JP/2013.
Satish Agarwal Vs. DCIT & Ors cases.
(P&H) and Yatish Trading Co. P. Ltd. Vs. ACIT (2011) 50 DTR 158 (Mum) are distinguishable. Thus she confirmed the addition of Rs. 6,69,062/- U/s 14A of the Act.
6. Now the assessee is in appeal before us. The ld AR of the assessee has submitted that the assessee has earned more interest than paid. Thus the interest account of the assessee does not show any negative balance. The interest paid on OD is of Rs. 6,69,062/- whereas interest earned by the assessee on FDR and others of Rs. 30,15,627/-. It could not be said that the assessee incurred expenditure on account of interest or investment in shares. A per provisions of Section 14A no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act. The assessee has earned short term capital gains of Rs. 9,07,828/- in addition to dividend income by virtue of investment in share application on account of which interest on OD of Rs. 6,69,062/- has been disallowed. When short term capital gain is part of the total income of the assessee, the lower authorities were not right to hold that interest on OD amount was incurred for earning income which did not form part of total income. It is further submitted 8 ITA No. 969, 971, 972, 973, 989 & 990/JP/2013.
Satish Agarwal Vs. DCIT & Ors cases.
that even if the investment was in share application, the same do not automatically invites disallowance of interest. Investment in share is primarily for earning income and receipt of dividend in incidental. The assessee had shown short term capital gain, therefore, OD amount was used for taxable income. He relied on the following decisions:
(i) CIT Vs. Hero Cycles 323 ITR 518.
(ii) Yatish Trading Co. P. Ltd. Vs. ACIT (2011) 50 DTR 158
(Mum).
(iii) Minda Investments Ltd. Vs. DCIT (2010) 52 DTR 1 (Del Trib).
(iv) DCIT Vs. Maharastra Seamless Ltd. (2011) 52 DTR 5 (Del Trib).
The case law referred by the Assessing Officer i.e. Cheminvest Ltd. Vs. ITO is dated 05/08/2009 and the case law cited by him are of later date. Therefore, the decision cited by the assessee prevails over earlier decisions. It is further submitted that if there are divergent opinions on an issue the one favourable to the assessee has to be followed. If Section 14A considered by the Assessing Officer is applied, the ld Assessing Officer had to prove the nexus that interest bearing fund was utilized for the purpose of earning of tax free income. The tax free income in the shape of long term capital gain and dividend income was earned out of the funds invested in the earlier years and not from 9 ITA No. 969, 971, 972, 973, 989 & 990/JP/2013.
Satish Agarwal Vs. DCIT & Ors cases.
utilizing of the funds withdrawn from OD account. It is settled law that where interest is received by the assessee on his fixed deposit and is also paid on loan obtained on the security of that fixed deposit, only the net interest is chargeable to tax on the principle of mutuality. He relied on the decision in the case of CIT Vs. Dr. V.P. Gopinathan 229 ITR 801 (Ker). Therefore, he prayed to delete the addition. At the outset, the ld DR has vehemently supported the order of the ld CIT(A).
7. We have heard the rival contentions of both the parties and perused the material available on the record. It is undisputed fact that the assessee has more interest income than interest paid on OD. Besides this he has also disclosed short term capital gain at Rs. 9,07,828/- in the income of the assessee, it is also taxable. The ld Assessing Officer had not established the nexus between the interest bearing borrowings with utilizing the fund in interest free investment. When the assessee has shown income from the short term capital gain, it is evident that he has been in the business of share trading. Further the ld Assessing Officer has not brought on record the amount deployed in shares for investment purposes. The case laws cited by the assessee are squarely applicable, therefore, the addition confirmed by 10 ITA No. 969, 971, 972, 973, 989 & 990/JP/2013.
Satish Agarwal Vs. DCIT & Ors cases.
the ld CIT(A) is reversed and the assessee's appeal is allowed on this ground
8. In the result the assessee's appeal is partly allowed.
9. ITA No. 971/JP/2013:
This is an appeal filed by the assessee arises against the order dated 01/11/2013 passed by the ld CIT(A), Central, Jaipur for A.Y. 2003-04. The sole ground of appeal is as under:-
"1. Under the facts and circumstances of the case, the ld CIT(A) has erred in confirming the trading addition of Rs. 6,60,440/- U/s 68 of the It Act, 1961 on account of credit appearing in the name of Shri Kanha Ram Agarwal, without consideration the submission of the assessee and material evidences submitted during the assessment proceedings."
10. The assessee derived income from M/s Shyam Trade Company, a proprietory concern, capital gain on transaction in shares and income from other sources in the form of interest and dividend. He filed his return for the A.Y. 2003-04 on 28/10/2009 declaring total income of Rs. 2,61,020/-. The case was scrutinized U/s 153A & 143(3) of the Act being a search case. The ld Assessing Officer observed that the assessee filed confirmation of loan from Shyam Agarwal for Rs. 2 lacs, R.K. Agarwal (HUF) Rs. 4,40,000/- but in personal balance sheet 11 ITA No. 969, 971, 972, 973, 989 & 990/JP/2013.
Satish Agarwal Vs. DCIT & Ors cases.
unsecured loan are appearing amount to Rs. 18,76,370/-. The assessee filed confirmation of loan for Rs. 6,60,439.71 paisa in the name of elder brother Shri Kanha Ram Agarwal without signature but the assessee had not shown debtor Shri Kanha Ram Agarwal in his personal account for the amount referred above. The assessee had not even furnished the confirmation letter alongwith other documents so the primary onus had also not been discharged. In view of this, the ld Assessing Officer made addition of Rs. 6,60,440/- U/s 68 of the Act.
11. Being aggrieved by the order of the Assessing Officer, the assessee carried the matter before the ld CIT(A), who had confirmed the addition by observing that the confirmation of account filed by the assessee in case of Kanha Ram Agarwal showed the opening balance of Rs. 6,40,439/- as on 01/4/2002. To verify the observation of the Assessing Officer in the assessment order, the assessment record was called for, further verifications were made by her. She found that Sh. Kanha Ram Agarwal in the books of account had been submitted during the course of assessment proceedings, a different copy of account, which submitted before her. As per ledger account, the opening balance as on 01/4/2002 was Rs. 4,76,296/- and not Rs. 6,40,439/-. 12
ITA No. 969, 971, 972, 973, 989 & 990/JP/2013.
Satish Agarwal Vs. DCIT & Ors cases.
Therefore, it is a case of misrepresentation of fact before her and the submissions being made in the various proceedings of the department are to be fabricated to suit the convenience of the appellant. Therefore, both the copies of ledger accounts filed before the Assessing Officer and before the ld CIT(A) were held to be unreliable evidence and the addition of Rs. 6,40,439/- was confirmed.
12. Now the assessee is in appeal before us. The ld AR of the assessee has argued that it is mistake made by the AR, the assessee should not be penalized for wrong furnishing of confirmation. He has further drawn our attention on page No. 22 of the paper book that opening balance as on 01/4/2002 was Rs. 4,76,296/- and during the year the assessee has received Rs. 1,84,143/- from Sh. Kanha Ram Agarwal, therefore, even the assessee does not submit confirmation, the maximum addition can be made U/s 68 of the Act at Rs. 1,84,143/- but Sh. Kanha Ram Agarwal is assessed to tax and it is apparent from the search assessment that he has carpet business and disclosed during the search more than Rs. 1.5 crores. Therefore, the addition confirmed by the ld. CIT(A) may please be deleted. At the outset, the ld DR has vehemently supported the order of the ld CIT(A).
13
ITA No. 969, 971, 972, 973, 989 & 990/JP/2013.
Satish Agarwal Vs. DCIT & Ors cases.
13. We have heard the rival contentions of both the parties and perused the material available on the record. It is revealed from the assessment order that Sh. Kanha Ram Agarwal, brother of the assessee has declared additional income U/s 132(4) of the Act on 27/08/2008. IN answer to question No. 22, he has disclosed Rs. 1.5 crores during the search under the various heads. It is also fact that the AR of the assessee submitted different confirmation before both the authorities. Now before us, he has filed different confirmations, therefore, the Assessing Officer is directed to verify the confirmation from the books of account of Shri Kanha Ram Agarwal. Accordingly, this issue is set aside to the Assessing Officer for limited purpose to verify and take decision as per law.
14. In the result, this appeal of the assessee is allowed for statistical purposes only.
15. ITA No. 972/JP/2013:
This is an appeal filed by the assessee arises against the order dated 12/11/2013 passed by the ld CIT(A), Central, Jaipur for A.Y. 2008-09. The effective grounds of appeal are as under:-
"1. Under the facts and circumstances of the case the Assessing Officer has erred in initiating proceedings U/s 14 ITA No. 969, 971, 972, 973, 989 & 990/JP/2013.
Satish Agarwal Vs. DCIT & Ors cases.
153A without having any incrimination material, hence the assessment completed in ab-initio void.
2. Under the facts and circumstances of the case the Assessing Officer has erred in confirming the addition of Rs. 1,12,021/- on account of "Interest paid to bank"
without consideration the submission of the assessee and material evidences, submitted during the assessment proceedings.
3. Under the facts and circumstances of the case the Assessing Officer has erred in sustaining the trading addition of Rs. 1,01,755/- by applying GP rate of 15% as against 12.57% declared by the assessee and invoking the provisions of Section 145(3) of the IT Act, 1961 without consideration the submission of the assessee and material evidences produced during the assessment proceedings."
16. Ground No. 1 of the appeal is not pressed, therefore, we dismiss this ground as not pressed.
17. The ground No. 2 of the appeal is against confirming the addition of Rs. 1,12,021/- on account of interest paid to bank. The assessee derived income from capital gain on transactions in shares and other sources in the form of interest. He filed his return for A.Y. 2008-09 on 28/10/2009 declaring total income of Rs. 9,64,590/-. There was a search and seizure operation conducted in this case on 27/08/2008 in the case of Agarwal (Carpet) Group. Therefore, assessment in this case 15 ITA No. 969, 971, 972, 973, 989 & 990/JP/2013.
Satish Agarwal Vs. DCIT & Ors cases.
as passed U/s 153A/143(3) of the Act. The ld Assessing Officer observed that the assessee had debited a sum of Rs. 1,12,021/- in the income and expenditure account under the head interest paid to bank. It is found by the Assessing Officer that the assessee has utilized overdraft facility from bank to invest in IPO of Indian companies and paid interest to the bank. It was submitted before the Assessing Officer vide letter dated 02/12/2010 that no borrowings were made by the assessee on which interest has been paid. The assessee is free to use his funds the way he likes. The assessee had not paid any interest to the outsider. He has net income from other sources at Rs. 93,786/-. Further he submitted before the Assessing Officer that withdrawal of OD account were used for the share business, against this the assessee had paid interest of Rs. 1,12,021/-. The assessee had shown short term capital gain of Rs. 8,46,859/-, and FDR interest of Rs. 1,14,379/-which were taxable, therefore, it cannot be said that borrowings were used for earning of exempt income. The ld Assessing Officer observed that the assessee had own several assets in the balance sheet but they do not have relevance so far as application of fund taken on interest and claim of deduction of such interest from income generated from such 16 ITA No. 969, 971, 972, 973, 989 & 990/JP/2013.
Satish Agarwal Vs. DCIT & Ors cases.
assets is concerned. In case of assessee interest has been paid to the bank on withdrawals used for investment in applications of initial public offer of shares in listed companies. The income from such investments (Dividend) is exempt from tax U/s 10(38) of the Act. Thus, the expenditure on assets income from which is exempt from tax is not allowable under the provisions of section 14A of the Act. Therefore, he made addition of Rs. 1,12,021/-. He relied on the decision of ITAT Delhi Bench 'B' Special bench, New Delhi in the case of Cheminvest Ltd. Vs. ITO ITA No. 87/Del/2008 order dated 05th August, 2009.
18. Being aggrieved by the order of the Assessing Officer, the assessee carried the matter before the ld CIT(A), who had confirmed the addition by observing that the appellant received interest @ 9.75% of Rs. 1,14,379/- on the FDR made from surplus funds available with him. Interest paid on the overdraft facility taken against this FDR was @ 10.75% totaling to Rs. 1,12,021/- during the year. The overdraft limit was used to invest in IPOs and shares to the extent of Rs. 7,80,875/- during this assessment year apart from the overdraft taken to advance loans to other persons outside the family from whom interest was charged. The assessee was maintaining continuous current 17 ITA No. 969, 971, 972, 973, 989 & 990/JP/2013.
Satish Agarwal Vs. DCIT & Ors cases.
account with the family members of the firm M/s Carpet Palace from where amounts were withdrawn from time to time to prevent the overdraft from going over the allowed limit. She further held that the overdraft facility was used to grant loans to person other than the family from whom the interest has been declared, though nexus has never been proved whether entire interest reflected in the computation of income was from loans advanced through OD account. Thus the appellant had taken OD facility which was used to advance loans to person other than family members from whom interest was charged and shown as income and also invested in shares and IPO, the income from which is dividend and was not taxable. The appellant did not have any surplus fund with him when he invested the surplus money in the FDRs. The OD taken against the FDRs amount withdrawn from the OD and invested in the IPOs cannot be claimed that the assessee was having surplus fund. The assessee is also not entitled to netting of the interest earned on FDR with interest paid on the OD as there is no nexus between the earning of the interest and expenditure incurred on earning of this interest, therefore claim of the assessee is not allowable. She relied on the decision of Hon'ble Jurisdictional High Court in the 18 ITA No. 969, 971, 972, 973, 989 & 990/JP/2013.
Satish Agarwal Vs. DCIT & Ors cases.
case of Hamendra Singh Vs. CIT 170 ITR 508 (Raj). She further observed that the assessee had not explained the investment in IPOs month wise and also not explained relationship between overdraft amounts withdrawn with investment. She further held that case law relied upon by the AR i.e. CIT Vs. Hero Cycles (2010) 233 CTR 74 (P&H) and Yatish Trading Co. P. Ltd. Vs. ACIT (2011) 50 DTR 158 (Mum) are distinguishable. Thus she confirmed the addition of Rs. 1,12,021/- U/s 14A of the Act.
19. Now the assessee is in appeal before us. The ld AR of the assessee has submitted that the assessee has earned more interest than paid. Thus the interest account of the assessee does not show any negative balance. The interest paid on OD is of Rs. 1,12,021/- whereas interest earned by the assessee on FDR and others of Rs. 1,14,379/-. It could not be said that the assessee incurred expenditure on account of interest or investment in shares. A per provisions of Section 14A no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act. The assessee has earned short term capital gains of Rs. 8,46,859/- in addition to dividend income. When short term 19 ITA No. 969, 971, 972, 973, 989 & 990/JP/2013.
Satish Agarwal Vs. DCIT & Ors cases.
capital gain is part of the total income of the assessee, the lower authorities were not right to hold that interest on OD amount was incurred for earning income which did not form part of total income. It is further submitted that even if the investment was in share application, the same do not automatically invites disallowance of interest. Investment in share is primarily for earning income and receipt of dividend in incidental. The assessee had shown short term capital gain, therefore, OD amount was used for taxable income. He relied on the following decisions:
(i) CIT Vs. Hero Cycles 323 ITR 518.
(ii) Yatish Trading Co. P. Ltd. Vs. ACIT (2011) 50 DTR 158 (Mum).
(iii) Minda Investments Ltd. Vs. DCIT (2010) 52 DTR 1 (Del Trib).
(iv) DCIT Vs. Maharastra Seamless Ltd. (2011) 52 DTR 5 (Del Trib).
The case law referred by the Assessing Officer i.e. Cheminvest Ltd. Vs. ITO is dated 05/08/2009 and the case law cited by him are of later date. Therefore, the decision cited by the assessee prevails over earlier decisions. It is further submitted that if there are divergent opinions on an issue the one favourable to the assessee has to be followed. If Section 14A considered by the Assessing Officer is applied, 20 ITA No. 969, 971, 972, 973, 989 & 990/JP/2013.
Satish Agarwal Vs. DCIT & Ors cases.
the ld Assessing Officer had to prove the nexus that interest bearing fund was utilized for the purpose of earning of tax free income. The tax free income in the shape of long term capital gain and dividend income was earned out of the funds invested in the earlier years and not from utilizing of the funds withdrawn from OD account. It is settled law that where interest is received by the assessee on his fixed deposit and is also paid on loan obtained on the security of that fixed deposit, only the net interest is chargeable to tax on the principle of mutuality. He relied on the decision in the case of CIT Vs. Dr. V.P. Gopinathan 229 ITR 801 (Ker). Therefore, he prayed to delete the addition. At the outset, the ld DR has vehemently supported the order of the ld CIT(A).
20. We have heard the rival contentions of both the parties and perused the material available on the record. It is undisputed fact that the assessee has more interest income than interest paid on OD. Besides this he has also disclosed short term capital gain at Rs. 8,46,859/- in the income of the assessee, it is also taxable. The ld Assessing Officer had not established the nexus between the interest bearing borrowings with utilizing the fund in interest free investment. When the assessee has shown income from the short term capital gain, 21 ITA No. 969, 971, 972, 973, 989 & 990/JP/2013.
Satish Agarwal Vs. DCIT & Ors cases.
it is evident that he has been in the business of share trading. Further the ld Assessing Officer has not brought on record the amount deployed in shares for investment purposes. The case laws cited by the assessee are squarely applicable, therefore, the addition confirmed by the ld CIT(A) is reversed and the assessee's appeal is allowed.
21. The third ground of assessee's appeal is against sustaining the trading addition of Rs. 1,01,755/- by applying GP rate of 15% as against 12.57% declared by the assessee and invoking the provisions of Section 145(3) of the Act. The assessee is proprietor of M/s Shyam Trade Company manufacturing and trading in carpets. On turnover of Rs. 39,45,037/- gross profit of Rs. 4.9 lacs had been declared on which GP rate worked out to 12.42%. The assessee had shown various expenses for job work, which was comparatively higher per unit manufacturing of carpet as compared to expenses shown by M/s Carpet Palace and M/s Supreme Carpet, both concerns of brothers of the assessee, engaged in similar business which had declared gross profit rate ranging from 20% to 30% during the year under consideration. The details of wastage, dead stock etc. are not properly maintained by the assessee. Valuation of closing stock has been shown at cost or 22 ITA No. 969, 971, 972, 973, 989 & 990/JP/2013.
Satish Agarwal Vs. DCIT & Ors cases.
market price for which no working is available. No stock register and quantitative details are available with the assessee. In view of the facts mentioned by the assessee, the Assessing Officer held that the assessee failed to present true and correct picture of the profit, therefore, his books of account is liable to be rejected U/s 145(3) of the Act. Accordingly, a lump sum addition of Rs. 5 lacs was made U/s 37(1) of the Act on account of unverifiable expenses.
22. Being aggrieved by the order of the Assessing Officer, the assessee carried the matter before the ld CIT(A), who had confirmed the addition by observing that the ld Assessing Officer had made specific observations regarding defects of books of account of the appellant. During the course of assessment proceedings, the ld AR of the assessee had not furnished the quantitative details of stock and its valuation was not supported by the purchase bills. These bills are essential for determining the true profit of the appellant even in absence of stock register. Considering that the appellant had consistently failed to furnish the quantitative details of the stock and purchase and sale bills for necessary verification. Therefore she confirmed the rejection of books of account U/s 145(3) of the Act. She 23 ITA No. 969, 971, 972, 973, 989 & 990/JP/2013.
Satish Agarwal Vs. DCIT & Ors cases.
further held that regarding estimation of the GP rate the A.O. had relied on the sister concern's GP rate while the AR of the appellant has insisted that its case is different from the sister concerns because he was not exporting his product. In view of this submission and the consistent stand of the Hon'ble ITAT that past history of the appellant is the best guide for determining the GP rate of the assessee, the GP rate chart was perused and it is seen that the appellant had shown a GP rate of 13.57% for A.Y. 2007-08 on total turnover of Rs. 39,89,388/- and during this A.Y. he has shown the GP of 12.57% on decreased turnover of Rs. 39,45,037/-. It is a generally accepted principle that in manufacturing industry the GP rate improves with decline in turnover. Therefore the GP is estimated at 15% and after giving a set off of GP declared by the appellant of Rs.4,90,000/-, a trading addition of Rs. 1,01,755/- has been confirmed. Accordingly, part relief was allowed by the ld CIT(A).
23. Now the assessee is in appeal before us. The ld AR has submitted that the case of the assessee is different from M/s Supreme Carpet and M/s Carpet palace on the ground that carpet ranges in quality very widely. The assessee is a local trader and there are no 24 ITA No. 969, 971, 972, 973, 989 & 990/JP/2013.
Satish Agarwal Vs. DCIT & Ors cases.
exports whereas in the case of M/s Supreme Carpet and Carpet Palace the business is of export. It is admitted fact that in export, the quality of carpet required much better to local market. Similarly the exporter also gets goods percentage of profit on export. The assessee has shown G.P. rate during the year @ 12.57% on total sale of Rs. 39,35,037/- compared to immediate preceding year's G.P. rate @ 13.57% on turnover of Rs. 39,89,388/-. Therefore, he prayed to accept the declared GP and relied on the decision in the case of CIT Vs. Inani Marbles Pvt. Ltd. (2009) 316 ITR 125 (Raj) wherein it has been held that in absence of any change in the factual position normally the profit rate declared and accepted in the preceding year constitute a good basis of working out the profits. He further argued that rejection of book result U/s 145(3) is also not applicable in the case of assessee as he has furnished audit report. The Auditor has not pointed out any defects in the books of account. The Assessing Officer has no case that there were any unaccounted sales or purchases. During the course of search, no incriminating material was found suggesting unaccounted business in the hands of the assessee. The defects pointed out by the 25 ITA No. 969, 971, 972, 973, 989 & 990/JP/2013.
Satish Agarwal Vs. DCIT & Ors cases.
ld Assessing Officer are not sufficient to apply Section 145(3) of the Act. He further relied on the following case laws:-
(i) Vishal Infrastructure Ltd. Vs. CIT (2007) 11 SOT 386 (Hyd.).
(ii) Narsing Das Ram Kisan Vs. ACIT 272 ITR 467.
(iii) CIT Vs. Poonam Rani (2010) 41 DTR 194 (Del).
24. The ld DR has vehemently supported the orders of the lower authorities.
25. We have heard the rival contentions of both the parties and perused the material available on the record. The defects pointed out by the Assessing Officer are not specific in nature. He has not brought on record any discrepancy in the books of account produced by the assessee but the compared case with M/s Supreme Carpet and Carpet palace who are in the export business. The assessee was trading goods for local market. The case is audited U/s 44AB of the Act as claimed by the assessee. The case law referred the assessee are squarely applicable. Further during the course of search, no incriminating documents were found and seized, therefore, lump sum addition made by the Assessing Officer and partly confirmed by the ld CIT(A) is not 26 ITA No. 969, 971, 972, 973, 989 & 990/JP/2013.
Satish Agarwal Vs. DCIT & Ors cases.
justified. Accordingly we reverse the order of the ld CIT(A) and allow the assessee's appeal on this ground.
26. In the result, the assessee's appeal is partly allowed.
27. ITA No. 973/JP/2013 This is an appeal filed by the assessee against the order dated 11/11/2012 passed by the ld CIT(A), Central, Jaipur for A.Y. 2009-10. The sole ground of appeal is reproduced as under:-
"Under the facts and circumstances of the case the ld CIT(A) has erred in sustaining the trading addition of Rs. 9,89,419/- by applying GP rate of 35% as against 26% declared by the assessee and invoking the provisions of Section 145(3) of the IT Act, 1961 without consideration the submission of the assessee and material evidences produced during the assessment proceedings."
28. The sole ground of the appeal is against sustaining the trading addition of Rs. 9,89,419/- by applying GP rate of 35% as against 26% declared by the assessee and invoking the provisions of Section 145(3) of the Act. The assessee is having income from capital gain and other sources. A search and seizure operation was carried out on 27/08/2008, therefore, the assessee was completed U/s 153A/143(3) of the Act. During the course of survey carried out at the proprietory concern of the assessee namely M/s Royal Rugs, the stock was found at Rs. 27
ITA No. 969, 971, 972, 973, 989 & 990/JP/2013.
Satish Agarwal Vs. DCIT & Ors cases.
43,99,054/- but books of account were not found completed. Therefore, the excess stock could not be ascertained at the time of survey. The ld Assessing Officer gave reasonable opportunity of being heard on this issue, explained the excess stock of Rs. 43,99,054/-. The assessee submitted before the Assessing Officer that total stock of Rs. 43,93,054/- was found on 27/08/2008 which includes carpet stock at Rs. 21,83,418/-, unfinished carpet of Rs. 8,04,336/- and the balance stock pertained to raw material mainly consisting of woolen and cotton yarn. During the course of survey, a detailed statement of Shri Satish Agarwal husband of assessee Smt. Renu Agarwal was recorded on 27/08/2008. Sh. Satish Agarwal admitted that books of account was not complete as the accountant of the firm Shri Ramavatar Sharma had met with an accident. In view of this, the book position of stock could not be worked out at the time of survey. It was further submitted by the assessee that as per books of account, the stock on the date of survey worked out to Rs. 42,02,386/- and the difference was actual of Rs. 1,96,668/-. She also gave the details of stock as per book during the course of assessment proceedings. It was further submitted that the value of flat rate of carpet @ 303 per Sq.ft of entire stock was not 28 ITA No. 969, 971, 972, 973, 989 & 990/JP/2013.
Satish Agarwal Vs. DCIT & Ors cases.
correct as the stock was of different quality. Further the opening stock includes old stock of roughly 1000 sq. ft value of which cannot be more than Rs. 100 per sq.ft. The ld Assessing Officer after considering the assessee's reply has held that the assessee was asked to prepare trading account to the date of survey and from the date of survey to the year end, but the same was not found complied with. Further the details in respect of purchase and sale have been maintained on monthly basis and proper record of purchases in the form of stock register containing day to day entry was not available. The ld Assessing Officer further relied on the case of Chuharmal Vs. CIT 172 ITR 250 (SC), Dhakeshwari Cotton Mills Ltd. Vs. CIT 26 ITR 775 (SC), Sukh Ram Vs. ACIT (2006) 285 ITR 256 and CIT Vs. Lal Chand Bhabutmal Jain (1985) 151 ITR 360 (Bom). He further observed that that Shri Kanha Ram Agarwal, brother of the husband of the assessee in the statement recorded on oath during the search has categorically admitted to have undisclosed income on account of money lending, share business, gift received in the name of family members etc. excess stock found during search/survey and also surrendered Rs. 1.5 crores on this account. However, he retracted subsequently on the surrender made in the 29 ITA No. 969, 971, 972, 973, 989 & 990/JP/2013.
Satish Agarwal Vs. DCIT & Ors cases.
statement during search. The assessee failed to substantiate the excess stock found at his premises was genuinely recoded in the books of account during the post survey period. Since the opening stock was available with the assessee which may have been partly sold and some fresh stock may have been purchased before the date of survey. 50% of the stock found at the time of survey is treated as verifiable and 50% is treated as unverifiable in the light of discussion made above and the discrepancies noticed in the nature of stock inventorised by survey party and nature of stock recorded by the assessee in his books of account. Thus, he made addition of Rs. 21,99,527/- in the income of the assessee. After rejecting the books result U/s 145(3) of the Act on the ground that the assessee has not maintained stock register, cash memo, vouchers and existence of low profit by relying upon the various case laws.
29. Being aggrieved by the order of the Assessing Officer, the assessee carried the matter before the ld CIT(A), who had allowed the appeal partly by observing that during the course of survey, excess stock could not be ascertained by the survey party. Therefore, the fundamental premise for disallowing 50% of the stock found does not 30 ITA No. 969, 971, 972, 973, 989 & 990/JP/2013.
Satish Agarwal Vs. DCIT & Ors cases.
exist. During the course of survey on 27/08/2008 only the quantitative details were taken but no rates were applied on it. Thus, the stock inventory does not reflect the value of stock found during the course of survey. She further considered the statement of appellant's husband as well as purchase bills available in the file but complete books could not be written due to accident of Accountant. There was no surrender by the husband on account of excess stock. The ld Assessing Officer take value of finished carpet @ 303 per sq.ft. and for unfinished carpet @ 273 per sq.ft. but these rates are not verifiable from the record of the assessee. The surrender made by the brother of the husband namely Sh. Kanha Ram Agarwal U/s 132(4) has no bearing on addition of 50% of stock was found. Similarly the ld Assessing Officer has not prepared the trading account on the date of survey and there is no basis of addition of 50% stock found in the income of the assessee. She also concluded that the ld Assessing Officer was wrong to hold that the assessee was not maintaining stock register properly but statement of her husband showed that the purchase bill and sale bill file was available with him during the course of survey. It is held that stock register was not maintained. It has also been mentioned by the auditor 31 ITA No. 969, 971, 972, 973, 989 & 990/JP/2013.
Satish Agarwal Vs. DCIT & Ors cases.
that closing inventory was not made available to him in the audit report. The survey report in the case of M/s Supreme Carpet was found in the record, which was being made part of order of ld CIT(A) as Annexure-A. Three significant observations have been made by the ITO in the survey report, which are as under:-
(a) The expenses on account of washing, commissions and salary were inflated as per the documents found during the course of survey.
(b) The value of the stock of yarn was taken as per the submissions of the assessee but was not supported by purchase bills though the assessee agreed to provide the purchase bills.
(c) Valuation of the stock found was taken on the basis of sale value of the carpet less GP rate and the value of the stock was calculated as follows:
"Valuation of stock is given as under:-
A. Value of carpets finished @ Rs. 303/- (i.e. 7206 sq.ft X Rs. 303 Satevalue GP) Rs. 21,88,418 B. Value of unfinished carpets @ 273 sq.ft as 2932 sq.ft.X Rs. 273 Stated by the owner Rs. 8,00,436 C. Value of yarn threat etc. at an average rate 4818 KG X Rs. 145 of Rs. 145/- per kg Rs. 6,98,610/-
D. Value of yarn given to the wears @ Rs. 1451 4942 kg. X Rs. 145 Rs. 7,16,590/-
Total value of stock as found on 27/08/2008 Rs. 43,99,054/- 32
ITA No. 969, 971, 972, 973, 989 & 990/JP/2013.
Satish Agarwal Vs. DCIT & Ors cases.
Thus on the basis of the observations of the auditor and the survey report made by the ITO on 28/08/2008, it is held that the books of appellant are not reliable and provisions of Sec. 145(3) are invoked in her case. She further held that the Hon'ble ITAT has held that the past history of the case is the best guide in determining the GP rate. In this case, it is seen that the turnover during the year has declined from Rs. 1,20,21,130/- in previous year to Rs. 1,12,11,071/- during the year under consideration while the GP rate has marginally improved to 25.8% to 26% by considering the observations of the ITO in the survey report regarding inflation of expenses and other anomalies pointed out in the report, the GP rate is estimated at 35% resulting in a GP of Rs. 39,23,910/-. After giving a setoff of GP declared by the appellant of Rs. 29,34,491/- a trading addition of Rs. 9,89,419/- has been confirmed.
30. Now the assessee is in appeal before us. It is submitted that during the course of survey inventory of stock was made and the same was valued at Rs. 43,99,054/-. During the course of survey, books were not complete, therefore, at the time of assessment, book position of stock was submitted and valued at Rs. 42,02,386/-. However, the ld Assessing Officer without verifying the statement of the assessee had 33 ITA No. 969, 971, 972, 973, 989 & 990/JP/2013.
Satish Agarwal Vs. DCIT & Ors cases.
disallowed 50% of stock found by presuming unverifiable stock. The ld Assessing Officer made addition partly on assumption as he has used word 'may have been' regarding opening stock as well as purchase of stock. The ld Assessing Officer had accepted the trading result of the assessee. When trading result is accepted by the ld Assessing Officer there is no reason to make addition as he observed that "looking to the better trading result no adverse inference is drawn". The ld CIT(A) has also acted at variance to the ld Assessing Officer. The ld Assessing Officer made addition on account of non verification of stock (not on account of excess stock), the ld CIT(A) had made addition by way of applying a higher GP rate, which was found by the ld Assessing Officer in order but she has disturbed the GP rate. She further relying on the past history of the assessee's case but the same has not been applied as the assessee has shown GP rate @ 26% during the year under consideration as against 25.8% in the immediate preceding year and 15.2% in A.Y. 2007-08. Both the lower authorities are contradicting each other one is accepting the book result another has not accepted the books result even past history has not been considered by the ld CIT(A). The assessee made detailed submissions before the ld CIT(A) 34 ITA No. 969, 971, 972, 973, 989 & 990/JP/2013.
Satish Agarwal Vs. DCIT & Ors cases.
on facts, books of account accepted the GP rate. He further submitted that the ld Assessing Officer had made straightway addition of 50% of stock as unexplained and had not provided any opportunity to the assessee as to why 50% of stock was to be treated as unexplained. Therefore, action of the Assessing Officer is against the principles of natural justice. He further argued that stock found at the time of survey at Rs. 43,99,054/- whereas as per stock computed on the basis of books of account was Rs. 42,02,386/-, the difference of Rs. 1,96,668/- was due to wrong measurement of carpet taken at the time of survey. During the course of survey, the value of per sq.ft was taken @ 303 per sq.ft. but the entire stock was not of same quality. Further the assessee had opening stock of Rs. 50,95,585/- which includes accumulated outdated old fashioned, discolored and dilapidated stock of last several years. He further calculated the old stock roughly at 1000 sq.ft, which cannot be valued more than 100 per sq.ft.. Therefore, if this rate is applied on old stock, the difference is also reconciled. There is no basis to consider the statement of Sh. Kanha Ram Agarwal, brother of husband of the assessee for assessing the income of the assessee. He further argued that statement recorded U/s 132(4) of the Act was not 35 ITA No. 969, 971, 972, 973, 989 & 990/JP/2013.
Satish Agarwal Vs. DCIT & Ors cases.
recorded in presence of witnesses. There was no surrender made by the assessee during the course of search. He further relied on the decision in the case of Jain trading Co. Vs. ITO (2007) 17 SOT 574 (Mum) and CIT Vs. Shri Ram Dass Motor Transport 238 ITR 177 (A.P.), therefore, he prayed to delete the addition.
31. At the outset, the ld DR has vehemently supported the order of the ld CIT(A) and argued that during the course of survey, the husband of the assessee has disclosed additional income U/s 132(4) under the various heads. The ld CIT(A) is restricted the addition at Rs. 9,89,419/- after considering the past history, therefore, the same may be confirmed.
32. We have heard the rival contentions of both the parties and perused the material available on the record. It is admitted fact that the assessee has admitted the difference on the basis of stock found during the course of survey and stock prepared on the basis of books of account at Rs. 1,96,668/-. It is undisputed fact that the books were not complete at the time of survey. The assessee also had not prepared trading account at the time of survey to determine the exact stock as per books of account and any difference on physical verification when 36 ITA No. 969, 971, 972, 973, 989 & 990/JP/2013.
Satish Agarwal Vs. DCIT & Ors cases.
purchase and sale bills available with the assessee. The assessee's argument was that the old stock was also included in the closing stock which has lesser value due to various reasons but in closing stock the ld Assessing Officer has valued the carpet at average rate which neutralize the higher rate of per sq.ft of carpet and lower rate of carpet, therefore, this argument is not acceptable. Further the assessee has not produced any evidence that old stock had been sold by the assessee at lower rate, therefore, keeping in view of the facts and circumstances of the case, we confirm the addition of Rs. 2 lacs in case of assessee. The assessee gets relief of Rs. 7,89,668/-. Hence, this ground of assessee's appeal is partly allowed.
33. In the result, the assessee's appeal is partly allowed.
34. ITA No. 989/JP/2013 This is an appeal filed by the assessee against the order dated 11/11/2013 passed by the ld CIT(A), Central, Jaipur for A.Y. 2007-08. The sole effective ground of appeal is as under:-
"Under the facts and circumstances of the case the ld CIT(A) has erred in confirming the addition of Rs. 74,837/- on account of "Interest paid to bank" without consideration the submission of the assessee and 37 ITA No. 969, 971, 972, 973, 989 & 990/JP/2013.
Satish Agarwal Vs. DCIT & Ors cases.
material evidences submitted during the assessment proceedings."
35. The ld Assessing Officer observed that the assessee derived income from business i.e. proprietory concern M/s Carpet Palace, income from capital gain from shares and income from other sources. The assessee had debited a sum of Rs. 74,837/- in the P&L account under the head interest paid to bank. He found that the assessee had utilized overdraft facility from the bank to invest in IPO of Indian companies and paid interest to the bank. The assessee was given reasonable opportunity of being heard on this issue. After considering the assessee's reply by observing that the interest from the FDR is entirely different issue. The assessee owned several assets in the balance sheet but they do not have relevance so far as application of fund taken on interest and claim of deduction of such interest from income generated from such assets is concerned. The interest had been paid to the bank on withdrawals used for investment in applications of initial public offer of shares in listed companies. The income from such investments (Dividends) is exempt from tax U/s 10(38) of the Act. Thus, the expenditure on assets income from which is exempt from tax is not allowable under the provisions of Section 14A 38 ITA No. 969, 971, 972, 973, 989 & 990/JP/2013.
Satish Agarwal Vs. DCIT & Ors cases.
of the Act. He relied on the decision of ITAT Delhi Bench 'B' Special bench, New Delhi in the case of Cheminvest Ltd. Vs. ITO ITA No. 87/Del/2008 order dated 05th August, 2009. Thus, he made addition of Rs. 74,836/-.
36. Being aggrieved by the order of the Assessing Officer, the assessee carried the matter before the ld CIT(A), who had confirmed the addition by observing that the appellant received interest @ 9.75% of Rs. 5,89,638/- on FDR made from surplus fund available with him. The interest paid on overdraft facility taken against this FDR was @ 10.75% totaling to Rs. 74,837/- during the year. The assessee had invested in IPO and shares at Rs. 42,89,300/- against the OD facility of Rs. 90 lacs during the year under consideration. Apart from overdraft facility taken to advance loan to other persons outside the family from whom the interest was charged. A continuous current account was maintained with the other members of the family and the firm M/s Carpet Palace from where amounts were withdrawn from time to time prevent the overdraft from going over the limit of Rs. 90 lacs. Though the nexus has never been proved whether entire interest reflected in the computation of income was from loans advanced through OD 39 ITA No. 969, 971, 972, 973, 989 & 990/JP/2013.
Satish Agarwal Vs. DCIT & Ors cases.
account or not. Thus the appellant had taken OD facility of Rs. 90 lacs which was used to advance loans to person other than family members from whom interest was charged and shown as income and also investment in shares and IPO, the income from which is dividend and was not taxable. The argument of the assessee was also not found convincing to her because once the appellant had invested the surplus funds in the FDR he no longer had any surplus funds. The netting of interest argument was also not found convincing to her. She further relied on the decision of Hon'ble Jurisdictional High Court in the case of Hamendra Singh Vs. CIT 170 ITR 508 (Raj). Therefore, she confirmed the addition.
37. Now the assessee is in appeal before us. The ld AR of the assessee has submitted that the assessee has positive balance of interest. The assessee has earned short term capital gain of Rs. 60,516/- in addition to dividend income by virtue of investment in share application on account of which interest on OD of Rs. 74,837/- had been disallowed. He further argued that short term capital gain does not come U/s 14A of the Act. The investment made in the shares/IPO out of own capital, which was at Rs. 7,69,78,116/- as on 01/4/2007 40 ITA No. 969, 971, 972, 973, 989 & 990/JP/2013.
Satish Agarwal Vs. DCIT & Ors cases.
whereas the investment in share is much lower. The dividend income of Rs. 24,861 is an incidental on addition of investment in shares. The assessee did not invest for earning dividend income, which is just incidental but invested in for the purpose of capital gain both long term and short term. He further relied on the following case laws:
(i) Yatish Trading Co. P. Ltd. Vs. ACIT (2011) 50 DTR 158 (Mum).
(ii) CCI Ltd. Vs. JCIT (2012) 71 DTR 141 (Kar)
(iii) CIT Vs. Hero Cycles 323 ITR 518 P&H).
(iv) DCIT Vs. Maharastra Seamless Ltd. (2011) 52 DTR 5 (Del
Trib).
Therefore, he prayed to delete the addition.
38. At the outset, the ld DR has vehemently supported the order of the ld CIT(A).
39. We have heard the rival contentions of both the parties and perused the material available on the record. The net interest income is positive. The assessee has shown short term capital gain of Rs.
60,516/- and paid tax on it. The assessee had own capital more than at Rs. 7.69 crores. The intention in applying of the IPO of the assessee may be earning of short term capital gain, long term capital gain or dividend. It depends on various factors to decide the nature of 41 ITA No. 969, 971, 972, 973, 989 & 990/JP/2013.
Satish Agarwal Vs. DCIT & Ors cases.
transaction. The ld Assessing Officer has not verified from the balance sheet whether this investment has been taken in stock in trade or in investment. The ld Assessing Officer has not established any direct nexus between borrowings and investment made in the IPO/shares and paid interest on account of OD facility. Therefore, addition made by the Assessing Officer and confirmed by the ld CIT(A) is deleted.
40. In the result, the assessee's appeal is allowed.
41. ITA No. 990/JP/2013 This is an appeal filed by the assessee against the order dated 11/11/2013 passed by the ld CIT(A), Central, Jaipur for A.Y. 2008-09. The sole effective ground of appeal is as under:-
"Under the facts and circumstances of the case the ld CIT(A) has erred in confirming the addition of Rs. 3,91,952/- on account of "Interest paid to bank"
without consideration the submission of the assessee and material evidences submitted during the assessment proceedings."
42. The ld Assessing Officer observed that the assessee derived income from business i.e. proprietory concern M/s Carpet Palace, income from capital gain from shares and income from other sources. The assessee had debited a sum of Rs. 3,91,952/- in the income and 42 ITA No. 969, 971, 972, 973, 989 & 990/JP/2013.
Satish Agarwal Vs. DCIT & Ors cases.
expenditure account under the head interest paid to bank. He found that the assessee had utilized overdraft facility from the bank to invest in IPO of Indian companies and paid interest to the bank. The assessee was given reasonable opportunity of being heard on this issue. After considering the assessee's reply by observing that the interest from the FDR is entirely different issue. The assessee own several assets in the balance sheet but they do not have relevance so far as application of fund taken on interest and claim of deduction of such interest from income generated from such assets is concerned. The interest had been paid to the bank on withdrawals used for investment in applications of initial public offer of shares in listed companies. The income from such investments (Dividends) is exempt from tax U/s 10(38) of the Act. Thus, the expenditure on assets income from which is exempt from tax is not allowable under the provisions of Section 14A of the Act. He relied on the decision of ITAT Delhi Bench 'B' Special bench, New Delhi in the case of Cheminvest Ltd. Vs. ITO ITA No. 87/Del/2008 order dated 05th August, 2009. Thus, he made addition of Rs. 3,91,952/-.
43
ITA No. 969, 971, 972, 973, 989 & 990/JP/2013.
Satish Agarwal Vs. DCIT & Ors cases.
43. Being aggrieved by the order of the Assessing Officer, the assessee carried the matter before the ld CIT(A), who had confirmed the addition by observing that the appellant received interest @ 9.75% of Rs. 11,75,638/- on FDR made from surplus fund available with him. The interest paid on overdraft facility taken against this FDR was @ 10.75% totaling to Rs. 3,91,952/- during the year. The assessee had invested in IPO and shares at Rs. 61,57,105/- against the OD facility of Rs. 94 lacs during the year under consideration. Apart from overdraft facility taken to advance loan to other persons outside the family from whom the interest was charged. A continuous current account was maintained with the other members of the family and the firm M/s Carpet Palace from where amounts were withdrawn from time to time prevent the overdraft from going over the limit of Rs. 94 lacs. Though the nexus has never been proved whether entire interest reflected in the computation of income was from loans advanced through OD account or not. Thus the appellant had taken OD facility of Rs. 94 lacs which was used to advance loans to person other than family members from whom interest was charged and shown as income and also investment in shares and IPO, the income from which is dividend and 44 ITA No. 969, 971, 972, 973, 989 & 990/JP/2013.
Satish Agarwal Vs. DCIT & Ors cases.
was not taxable. The argument of the assessee was also not found convincing to her because once the appellant had invested the surplus funds in the FDR he no longer had any surplus funds. The netting of interest argument was also not found convincing to her. She further relied on the decision of Hon'ble Jurisdictional High Court in the case of Hamendra Singh Vs. CIT 170 ITR 508 (Raj). Therefore, she confirmed the addition.
44. Now the assessee is in appeal before us. The ld AR of the assessee has submitted that the assessee has positive balance of interest. The assessee has earned short term capital gain of Rs. 6,32,154/- in addition to dividend income by virtue of investment in share application on account of which interest on OD of Rs. 3,91,952/- had been disallowed. He further argued that short term capital gain does not come U/s 14A of the Act. The investment made in the shares/IPO out of own capital, which was at Rs. 8,14,45,471/- as on 01/4/2008 whereas the investment in share is much lower. The dividend income of Rs. 30,662/- is an incidental on addition of investment in shares. The assessee did not invest for earning dividend income, which is just incidental but invested in for the purpose of 45 ITA No. 969, 971, 972, 973, 989 & 990/JP/2013.
Satish Agarwal Vs. DCIT & Ors cases.
capital gain both long term and short term. He further relied on the following case laws:
(i) Yatish Trading Co. P. Ltd. Vs. ACIT (2011) 50 DTR 158 (Mum).
(ii) CCI Ltd. Vs. JCIT (2012) 71 DTR 141 (Kar)
(iii) CIT Vs. Hero Cycles 323 ITR 518 P&H).
(iv) DCIT Vs. Maharastra Seamless Ltd. (2011) 52 DTR 5 (Del
Trib).
Therefore, he prayed to delete the addition.
45. At the outset, the ld DR has vehemently supported the order of the ld CIT(A).
46. We have heard the rival contentions of both the parties and perused the material available on the record. The net interest income is positive. The assessee has shown short term capital gain of Rs.
6,32,154/- and paid tax on it. The assessee had own capital more than at Rs. 8.14 crores. The intention in applying of the IPO of the assessee may be earning of short term capital gain, long term capital gain or dividend. It depends on various factors to decide the nature of transaction. The ld Assessing Officer has not verified from the balance sheet whether this investment has been taken in stock in trade or in investment. The ld Assessing Officer has not established any direct 46 ITA No. 969, 971, 972, 973, 989 & 990/JP/2013.
Satish Agarwal Vs. DCIT & Ors cases.
nexus between borrowings and investment made in the IPO/shares and paid interest on account of OD facility. Therefore, addition made by the Assessing Officer and confirmed by the ld CIT(A) is deleted.
47. In the result, the assessee's appeal is allowed. Order pronounced in the open court on 24/09/2015.
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(Laliet Kumar) (T.R. Meena)
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vkns'k dh izfrfyfi vxzsf'kr@Copy of the order forwarded to:
1. vihykFkhZ@The Appellants-(i) Shri Satish Agarwal, Jaipur.
(ii) Shri Ram Kumar Agarwal, Jaipur.
(iii) Smt. Renu Agarwal, Jaipur.
(iv) Shri Kanha Ram Agarwal, Jaipur.
2. izR;FkhZ@ The Respondent- The DCIT, Central Circle-3, Jaipur..
3. vk;dj vk;qDr@ CIT
4. vk;dj vk;qDr¼vihy½@The CIT(A)
5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur
6. xkMZ QkbZy@ Guard File (ITA No. 969, 971, 972, 973, 989 & 990/JP/2013) vkns'kkuqlkj@ By order, lgk;d iathdkj@Asst. Registrar